Lloyds keeps buyout group in-house

UK state-backed lender Lloyds Banking Group has decided against granting its in-house private equity arm, LDC, independence, despite many of its peers divesting non-core assets including investment arms.

LDC – formerly known as Lloyds Development Capital – will remain part of its parent, Lloyds Banking Group, according to a strategic review held by the UK lender which was published Thursday.

It brings to an end speculation over LDC’s future from its peers and commentators, sparked by comments made by its own chief executive, Darryl Eales.

As recently as November, Eales was quoted in the UK media as saying: “If the regulatory environment is the same as it is now, then it is inconceivable that we won’t have third-party funds of some kind by 2013. He told the Financial Times: “It is probable that we will spin out. It is just a question of how and when.”

But following the strategic review, Eales said in a statement: “This is great news for both LDC and regional business communities. The support of Lloyds Banking Group has been superb during a period of financial and economic turbulence and we can now firmly focus on developing the business based on our management orientated, relationship-based and regionally focused approach.”

Although Lloyds has decided to hang onto its buyout arm, UK peer Barclays is still in the process of spinning out Barclays Private Equity, its own in-house investment unit.

LDC said in a statement that it had adopted a “through the cycle” investment strategy over the last two and a half years, putting more than £650 million to work in 30 small to medium-sized enterprises during that time.

The firm has been one of the most active participants in the UK mid-market during the economic crisis and its aftermath. In April this year, it sealed two deals – the acquisition of majority stakes in industrial chemicals group A-Gas and cloud computing business UK2 Group – which brought its deployed capital so far this year to £163 million. Last year, it returned more than £650 million in deal proceeds and deployed about £250 million across 11 deals.

Truett Tate, Group executive director for the wholesale division of Lloyds Banking Group, said: “UK SMEs are the backbone of the British business landscape and Lloyds Banking Group remains committed to supporting and nurturing these companies. Such support lies at the heart of LDC’s success and we are confident that LDC will continue to deliver attractive growth for many years to come.”